The municipal market was largely unchanged yesterday amid fairly light trading activity in the secondary.
“We’re largely flat,” a trader in New York said. “It’s a bit of a slow start, not a whole lot trading at this point. I’m not really seeing much movement right now, just pretty flat overall.”
“There might be some gains here and there, but I’d still call it largely flat,” a trader in Los Angeles said. “You can maybe pick up a basis point or two in spots. But it’s somewhat quiet out there, just starting off the week.”
The Treasury market showed losses yesterday. The benchmark 10-year note was quoted near the end of the session with a yield of 3.71% after opening at 3.68%. The yield on the two-year was quoted near the end of the session at 0.90% after opening at 0.89%. The yield on the 30-year bond was quoted near the end of the session at 4.68%, after opening at 4.65%.
The Municipal Market Data triple-A scale yielded 2.81% in 10 years and 3.79% in 20 years yesterday, matching Friday’s levels. The scale yielded 4.15% in 30 years yesterday, matching Friday’s level.
Friday’s triple-A muni scale in 10 years was at 76.2% of comparable Treasuries and 30-year munis were at 89.2%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 93.9% of the comparable London Interbank Offered Rate.
After a one-week postponement due to stalled legislation, California will make its way to market with a $2 billion sale of various-purpose general obligation bonds.
This transaction is part of an estimated $9.52 billion in new volume slated for pricing this week, according to Ipreo LLC and The Bond Buyer.
The estimate is a significant jump from the revised $4.47 billion that made its way to market last week, according to Thomson Reuters.
The California deal — which will be priced by JPMorgan and Morgan Stanley on Thursday after a retail order period today and tomorrow — was cleared to go to market after the state Assembly passed a cash-management bill whose pending approval had delayed the pricing.
The bill’s purpose was to ensure the state government would be able to manage its cash-flow issues and avoid the liquidity crisis it experienced in 2009, when it paid creditors with IOUs to preserve money for debt service and other priority payments.
The debt has the lowest of all state GO ratings, carrying a Baa1 from Moody’s Investors Service and BBB from Fitch Ratings.
The GOs were downgraded to A-minus from A by Standard & Poor’s on Jan. 13 due to a severe budget imbalance and the potential reappearance of cash-flow problems, according to a report from the rating agency.
Elsewhere in the new-issue market, Goldman, Sachs & Co. will price $711 million of revenue refunding bonds tomorrow for the District of Columbia, following a retail order period today.
The bonds are rated Aa2 by Moody’s, AAA by Standard & Poor’s, and AA by Fitch.
The deal consists of $696 million of tax-exempt income-tax secured revenue refunding bonds in Series 2010A, as well as $15.1 million of taxable income-tax secured revenue bonds in Series 2010B.
In the health care sector, two hefty offerings are being planned on behalf of the Ascension Health Senior Credit Group, some issued as fixed rate and some as variable rate.
The nation’s largest nonprofit health care provider will enter the market tomorrow with the fixed-rate piece of the deal, selling $670.5 million of mostly new fixed-rate debt tentatively set to mature through 2040.
The fixed-rate piece is expected to include five series of bonds each from a different state issuer, the largest of which is $205.6 million from the Michigan State Hospital Authority.
Additionally, $169 million will be issued by the Wisconsin Health and Educational Facilities Authority, $140.8 million by the Rutherford County, Tenn., Health and Educational Facilities Board, $85.3 million by the Connecticut Health and Educational Facilities Authority, and $69.5 million by the Tarrant County, Tex., Cultural Educational Facilities Financing Corp.
The floating-rate piece of the transaction — $675 million — will carry a final maturity in 2050. About $236 million of the deal is structured in a “windows mode” and that piece will price on March 16.
The remainder is structured as seven-day variable-rate bonds and that piece will be marketed on March 24. The highly rated system provides its own self-liquidity.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote: “The municipal market remains very well bid, with torrid and unrelenting demand from retail and other clients supporting both low nominal yields and tight credit spreads, in particular within 15 years.”
“Longer buyers remain a bit more diffident but still aggressive,” he wrote. “We do note a dramatic increase in institutional gains taking last week that helped offset an overall softer tax-exempt new-issue calendar — however, even Friday’s pointed losses in the Treasury market were insufficient to budge long munis off their strong premium pricing.
“This week, tax-exempt supply returns with a $2 billion state of California loan that we expect will attract solid demand, despite what should be a very difficult budget season beginning later this month,” Fabian wrote.
“There are also a large number of Build America Bond sales that will keep up the scarcity in high-grade, tax-exempt supply. Thus, prospects are again favorable for municipals this week, and our near-term expectation is for more of the same, in particular at the front of the yield curve.”
The economic calendar was light yesterday.